Sterling slips as weak wage data counters bets on Bank of England shift - REUTERS
LONDON (Reuters) - Sterling fell back from a one-year high to trade lower against the dollar on Wednesday as weaker than expected UK wage growth put a brake on bets that the Bank of England could change its interest rate stance due to a surge in inflation.
Wages in the three months to July were 2.1 percent higher than a year earlier, little changed from previous months’ growth rates. But economists polled by Reuters had on average forecast a rise of 2.3 percent.
Inflation has shot past the BoE’s 2 percent target - surging to its highest level in more than five years according to data released this week at 2.9 percent.
But wages have lagged consumer price rises. Analysts say that complicates the BoE’s outlook for monetary policy, as the Bank grapples with an economy that is slowing in the face of uncertainty around leaving the European Union.
The pound slipped from a one-year high of $1.3329 in morning trade to trade 0.2 percent lower on the day at $1.3254.
It also fell 0.3 percent against the euro to hit the day’s low of 90.35 pence per euro.
“We’re seeing a little bit of a pullback in the pound and could see some weakness in the short to medium term,” said CMC chief markets analyst Michael Hewson.
“But ultimately what it (wage data) does do is shift the focus to tomorrow’s BoE meeting and really, the big question is how concerned is the central bank about a 2.9 percent inflation rate.”
Two members of the Bank’s Monetary Policy Committee are already voting for higher rates. Any more defections when the MPC meets on Thursday could push the pound higher, and there has been talk that chief economist Andy Haldane could shift to that camp.
But with the economy struggling, many traders doubt the Bank’s ability to raise rates at all.
“The BoE is in an unenviable position heading into tomorrow’s MPC meeting, given that inflation is above target but the latest wage and investment data show that the economy is hardly going through a demand-driven boom that needs an immediate monetary response,” said Ranko Berich, head of market analysis at Monex Europe.
Reporting by Ritvik Carvalho; additional reporting by Nigel Stephenson; Editing by Jemima Kelly and Hugh Lawson